Gilead Sciences: Can Earnings Cure What Ails It?

By Ben Levisohn

Gilead Sciences (GILD) reports its financial results after today’s close today. Does it have the perfect prescription to cure its recent weakness?

Bloomberg

Shares of Gilead Sciences have dropped 11% during the past three months, as concerns about the cost of its hepatitis-C drug Sovaldi have hit the headlines. That makes it one of the worst performers among large-cap biotech, as Biogen Idec (BIIB), for instance, has dropped just 0.9% during the same period, while Amgen (AMGN) has fallen 3.9% and Regeneron Pharmaceuticals (REGN) has gained 6%. Celgene (CELG) has fallen 14%.

JPMorgan’s Geoff Meacham and team think Sovaldi will be the market’s big concern when Gilead releases its results:

The debate over hep C costs versus clinical benefit has continued with negative headlines nearly every day. The goal of MCOs (UNH) and PBMs (ESRX, CVS) is to manage the huge influx of hep C patients, yet it is debatable as to whether these strategies will really impact clinical practice. For Gilead’s 1Q call later today, commentary on pricing / reimbursement will be critical, and to this end we conducted an extensive review on the distribution of hep C patient by fibrosis stage. An oft-mentioned strategy for queuing up hep C patients is to defer care for everyone except cirrhotics and those with F3-F4 disease. We estimate that F3-F4 patients represent ~30-40% of the hep C population; restricting use to these patients in the US is not realistic, but there is still significant upside to Sovaldi consensus if such restrictions were put in place. In addition, KOL feedback suggests that limiting therapy to F3-F4 would be met with major resistance, and delaying therapy ultimately could drive costs higher. In this “delay” scenario, the tail of the hep C market would be markedly longer than current thinking on the Street. Overall, we would remain buyers of GILD shares; robust Rx growth in hep C and the FDC launch this fall should help calm the fears of payer-based efforts to alter physician practice.

Deutsche Bank’s Robyn Karnauskas and team also consider the recent Sovaldi headlines to be little more than noise:

We think PBMs are likely in the process now of developing a plan on how to try and extract discounts in HCV. ESI has led discussions, with CVS Caremark echoing that sentiment today. At EASL, Kaiser mentioned that they are working on a new delivery care model now. Simply put, we expect to hear more noise from PBMs about forcing competition but in truth they have little negotiating leverage until competitive therapies reach the market. We believe the PBMs are leading the fight against Sovaldi pricing as their customers lack the good will or political capital to lead the charge themselves.

All told, Karnauskas expects Sovaldi’s discount–including government programs–will total about 18%.

Shares of Gilead Sciences have gained 1.7% to $72.80 today, while Biogen Idec has risen 3.3% to $307.75, Amgen has advanced 2.1% to $119.52, Regeneron has climbed 3.5% to $312.56 and Celgene is up 2.1% to $146.82.

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APRIL 22, 2014 3:20 P.M.

Alan J. Stein MD wrote:

The delay strategy is not a good idea since it is well known that treatment in the earlier stages of Hep. C is more effective than later. A study presented by Gilead at this year's EASL meeting showed cure of non-cirrhotic Hepatitis C with sofosbuvir/ledipasvir in eight weeks--four weeks shorter than the standard 12 weeks.

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Earnings reports, corporate strategies and analyst insights are all part of what moves stocks, and they’re all covered by the Stocks to Watch blog. We also look at macro issues, investor sentiments and hidden trends that are affecting the market. Stocks to Watch gives you the full picture of the U.S. stock markets, all day long.

The blog is written by Ben Levisohn, a former stock trader who has covered financial markets for the Wall Street Journal, Bloomberg and BusinessWeek.